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Monday, February 12, 2007

Where's the value added?

A story in today's Chronicle triggered a long-simmering claim of mine:
George Washington University, already the costliest major university in the United States to attend, today said that tuition, fees, room, and board would amount to more than $50,000 for new students this fall, according to The Washington Post. At the same time, though, the university plans to increase its financial-aid budget sharply, so the actual cost for most students will be substantially less than $50,000.

I am not convinced that the expensive years at private college are a net payoff for many students. Yes, being in the right-tail at Harvard gets you further down the line than being in the right-tail at UT Permian Basin (see Mr. Obama). On the other hand, if you are in the left-tail at Princeton, are you that much better off after four years there than at, say, Penn State?

There is a literature that investigates the value added of expensive private school, and from what I remember of those papers (read about seven years ago now) the evidence was decidedly mixed. In other words, there wasn't a clear finding that expensive private school provided sufficient value added. For example, this article claims that college attributes might explain up to 2% of the variance of future earnings amongst college graduates. Granted the data came from the 1980s so things might be a bit different today, but I bet they aren't that different.

One wonders if, when the cost of attending a year of a college is greater than the median household income in the United States, the private school offers tremendous value added or whether it doesn't matter if the student who pays such a price goes to GW or Rutgers - their family network and natural abilities will yield a high-paying job in either case.

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